Question

A and B are in partnership, sharing profits in the ratio of 5 : 3 respectively. Their balance sheet is as follows: Liabilities ₹ ₹ Assets ₹ ₹ Creditors   3,20,000 Cash at Bank   53,000 Workmen’s Compensation Reserve   80,000 Debtors 1,00,000 97,000 Outstanding Expenses   10,000 Less: Provision 3,000 Capital A/cs:   9,00,000 Stock   4,40,000 A 5,00,000 Plant   7,20,000 B 4,00,000           13,10,000     13,10,000 C is admitted into partnership on the following terms: The new profit-sharing ratio will be 4 : 3 : 2 between A, B, and C, respectively. C is to bring in ₹ 2,00,000 as Capital. Goodwill of the firm is valued at ₹ 3,60,000, but C is unable to bring his share of goodwill in cash. Outstanding expenses be brought down to ₹ 4,000. To write off bad debts amounting to ₹ 5,000. A Creditor for ₹ 20,000 is not traceable for a number of years, and the amount is to be written off.

Based on the above information, you are required to answer the following questions:

1. Loss/Gain on Revaluation will be:
   1. Loss ₹ 24,000
   2. Gain ₹ 24,000
   3. Gain ₹ 21,000
   4. Gain ₹ 22,000
2. Goodwill will be:
   1. Credited to A ₹ 50,000 and B ₹ 30,000
   2. Credited to A ₹ 2,92,500 and B ₹ 67,500
   3. Credited to A ₹ 65,000 and B ₹ 15,000
   4. Credited to A ₹ 2,25,000 and B ₹ 1,35,000
3. Balance of A’s Capital Account will be:
   1. ₹ 6,28,125
   2. ₹ 6,15,000
   3. ₹ 6,30,000
   4. ₹ 6,13,125

Answer 1

1. B. Gain ₹ 24,000
2. C. Credited to A ₹ 65,000 and B ₹ 15,000
3. C. ₹ 6,30,000

Explanation:

1.

Dr.	Revaluation Account				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Bad Debts		2,000	By Outstanding Exp.		6,000
To Gain on Revaluation transferred to:		24,000	By Creditors		20,000
A’s Capital A/c	15,000
B’s Capital A/c	9,000
		26,000			26,000

2.

C’s share of goodwill = `3,60,000 xx 2/9`

= 80,000

It will be credited to A’s Capital A/c and B’s Capital A/c in their sacrificing ratio of 13 : 3 calculated as below:

Sacrificing ratio = Old ratio − New ratio

A’s Sacrifice = `5/8 - 4/9`

= `(5 xx 9)/(8 xx 9) - (4 xx 8)/(9 xx 8)`

= `45/72 - 32/72`

= `13/72`

B’s Sacrifice = `3/8 - 3/9`

= `(3 xx 9)/(8 xx 9) - (3 xx 8)/(9 xx 8)`

= `27/72 - 24/72`

= `3/72`

The Sacrificing Ratio = `13/72 : 3/72` or 13 : 3

Hence, A’s Share = `80,000 xx 13/16`

= 65,000

B’s Share = `80,000 xx 3/16`

= 15,000

3.

Dr.	A’s Capital Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Balance c/d	6,30,000	By Balance b/d	5,00,000
		By Revaluation A/c	15,000
		By Wotkmen’s Compensation Reserve	50,000
		By C’s Current A/c (Goodwill)	65,000
	6,30,000		6,30,000